How the gap would close in the long run

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Reference no: EM131227943

1. In the diagram sketch a line representing a potential output of $10 trillion. Sketch a short-run aggregate supply curve when the expected price level is 120.

2. In the diagram for this exercise, use aggregate demand and short-run aggregate supply curves to show an economy at a short-run equilibrium with an expansionary gap, when potential output is $10 trillion. Then illustrate how the gap would close in the long run.

Reference no: EM131227943

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